The story of the masked rider in Old California opens as Don Diego de la Vega is returning to California from Spain, where he has been studying for several years.

With his father Don Alejandro now charged with treason along with Don Torres, Zorro must see that the judge sent by the governor arrives to assure a fair trial.

Capitan Toledano plans to interrogate two prisoners who were seized when the gunpowder was recovered. The prisoners warn Figueroa, one of the magistrado's men, that they will talk unless someone helps them escape. Instead, they are found dead in their cell the next morning. A doctor examines the bodies and suspects murder, but the magistrado announces that it was suicide.

Don Alejandro convinces all of the landowners to sign a document pledging their loyalty to the government, for he has become worried by the growing signs of possible civil unrest. He leaves a copy in the hacienda and takes the original to the capitol, intending to present it to the governor. Alejandro has barely left when Diego receives some unwelcome news. A new administrator has arrived in the pueblo and announced his decision to use the de la Vega hacienda as his headquarters.

An emissary from a foreign power has arrived in the pueblo to discuss plans to help the Eagle in his rebellion. George Brighton, the agent, warns Varga that there must not be any open resistance. His government wants an obedient colony, not one torn apart by internal battles. Varga promises to deliver control as planned, but he continues to worry about Don Alejandro and the other landowners who have pledged their allegiance to the King.

Diego overhears Varga telling his aide that the de la Vega hacienda is so comfortable he intends to make it his permanent headquarters. Knowing his father will soon return and would fight to the death to protect his home, Diego decides to try a risky plan to drive the Eagle out.

Another stranger arrives in the pueblo and travels to the de la Vega hacienda, intending to meet with the Eagle. Diego recognizes the visitor as Count Kolinko, an ambassador from an Eastern European country that has long been interested in controlling California. Since the Eagle has left for the pueblo, Diego manages to convince Kolinko that he is also part of the conspiracy. He almost succeeds in gaining necessary details of the plot.

Bernardo, who is keeping watch over Varga, is disturbed to see Garcia leading a patrol of lancers out of the cuartel. Even more disturbing is the sight of several strangers who drift into the Eagle's headquarters. When he tries to look inside, the gates are locked, so he rushes to warn Diego of the threat.